Siege at the Neighborhood Salad Bar

By CHARLES V. BAGLI

Published: July 20, 1997

Correction Appended

NASHVILLE—
RAYMOND D. SCHOENBAUM dropped heavily into a booth at the Rio Bravo restaurant on West End Avenue here, ordering chicken quesadillas, fresh tortillas and iced tea as he launched into a passionate account of his march across the South to recapture Shoney's, the now-ailing restaurant chain founded by his father, Alex, 50 years ago.

Though he is one of the company's largest shareholders, Mr. Schoenbaum is an outsider today who must plot his takeover campaign from a seat in the Rio Bravo chain he started, rather than at the Shoney's Inc. headquarters about a mile away on Elm Hill Pike.

His plan to take over the company and management's attempt to fend him off have become the subject of much speculation on fiercely humid days at the country clubs, banks and law offices of Nashville and among a generation who grew up eating at Shoney's and buying stock in what was a hometown favorite and a Wall Street blockbuster. The battle pits Mr. Schoenbaum, a lifelong restaurateur with a family legacy, against C. Stephen Lynn, chairman and chief executive of Shoney's and a turnaround expert. Caught in the middle is Raymond's younger brother, Jeffrey, a member of Shoney's seven-member board, which Raymond and his mother are trying to oust in favor of their own set of directors.

Shoney's, once prized for its half-pound hamburgers, fresh shrimp, onion rings and strawberry pie, is no longer regarded as perhaps the best restaurant chain in the country. Same-store sales have been down for years, and the stock has plummeted to $6 a share from $25 three years ago, a trend that cut the value of the Schoenbaum family stake by about $73 million. Worst of all, Mr. Schoenbaum said, customers and franchisees keep calling him to complain about the service and the quality of food at his dad's former restaurants.

Yet if Alex Schoenbaum, who died in December at 81, started the company in an era when Shoney's was the only place to go in many a town, his 51-year-old son wants to take it back at a time when the company is competing with every imaginable ethnic food, decor and price.

''They have a tough task turning this company around, whether it's Lynn or Schoenbaum,'' said David Trossman, an analyst at Alex. Brown & Sons. ''They've got a lot to do and not a lot of capital.''

That may be, but Raymond Schoenbaum has found an audience among increasingly restive shareholders and franchise operators. His call for a special meeting to hash out his proposal to overthrow the board has also won the support of Raymond Danner, Alex Schoenbaum's legendary partner, who is retired but still retains a widespread following among old-line franchisees, many of whom worked their way up from dishwashers to millionaires during the company's golden years.

Mr. Lynn has counterattacked by saying that those golden years weren't all that golden, at least not at the end. Mr. Lynn contends that many problems he inherited when he was hired two years ago, from large debts to declining quality to overexpansion, date to the time of the founders. He also notes that the old guard was the object of a bruising racial discrimination lawsuit that ended in an expensive settlement.

But all that may not be enough to stop Mr. Schoenbaum's march to reclaim Shoney's. Last month he and his mother, Betty, who together own 8 percent of Shoney's shares, filed documents with the Securities and Exchange Commission asking for the special stockholders' meeting. By last Wednesday, only a week after starting to solicit support, they had four times the number of proxies needed, or 40 percent of the outstanding shares, to force the company to call the meeting by mid-October, setting up a showdown with Mr. Lynn in what is an increasingly acerbic fight.

''I couldn't forgive myself if I let this company go down without doing something about it,'' said Mr. Schoenbaum, who at 6 feet 3 and 300 pounds is often thought, wrongly, to have been the model for the pudgy Big Boy figure that once adorned the restaurants. ''It's the emotional attachment I have to the company, not the financial connection, that keeps me going. It really isn't about the money.''

His mother concurs. ''We're hoping to restore it to the glory that was once Shoney's,'' Mrs. Schoenbaum, 80, said from the family home in Charleston, W. Va. ''We feel like we have a duty to the stockholders. If my husband were alive to see the besmirching of Shoney's, it would kill him.''

To wage the battle, Mr. Schoenbaum estimates that he and his mother are spending $3 million to hire Montgomery Securities, an investment bank with strong ties to the restaurant industry; King & Spalding, a leading law firm in Atlanta, and Abernathy MacGregor, a public relations firm experienced in battles for corporate control.

Mr. Lynn, who views Mr. Schoenbaum as an interloper who could upend the company's turnaround, has countered with Salomon Brothers, the investment bank, and Wachtell, Lipton, Rosen & Katz, a law firm best known for defensive corporate warfare. Shoney's is improving, Mr. Lynn said, and it would be folly to switch leaders and plunge back into the organizational chaos of the early 1990's.

Correction: July 27, 1997, Sunday An article last Sunday about a fight for control of Shoney's Inc. misstated the surname of the owner of 18 Shoney's restaurants in the Knoxville area in Tennessee. He is William Baugh, not Ball.